Reconciling Health Reform Taxes and Fees on Individuals and Businesses

One of the key issues the White House, House, and Senate will be negotiating behind closed doors, is how to pay for President Obama’s $2.5 trillion plan. Reconciling the differences between these two bills will remain a difficult task for legislators particularly as they rely on a different mix of revenue-generators. The following two lists include key revenue-generating mechanisms in both the House and Senate bills as reported by Tax Notes.

House-passed Affordable Health Care for America Act (H.R. 3962):
– $460.5 billion over 10 years from a 5.4 percent Surtax on individuals making more than $500,000 and families earning more than $1 million (begins 2011)
– $135 billion as part of an 8 percent tax of a firm’s payroll ($750,000 or more) and a lower rate if firm payroll is between $500,000 $749,999 (begins 2013)
– $33 billion as part of a 2.5 tax on modified adjusted gross income (AGI) for those individuals that do fail to secure “acceptable” health coverage (begins 2014)
– $20 billion from a 2.5 percent excise tax on medical devices (begins 2013)
– $17.1 billion in corporate information reporting requirements (applies to payments made after December 31, 2011)
– $13.3 billion from a cap on Flexible Spending Accounts (FSAs) at $2,500 and indexed forward to the CPI-U (begins 2011; currently there is no cap)
– $7.5 billion for the limitation of tax treaty benefits related to U.S. withholding tax imposed on deductible related-party payments
– $6 billion from a “worldwide interest allocation” repeal (begins 2011)
– $5.7 billion as a result of codifying the economic substance doctrine and imposing penalties on underpayments
– $5 billion for reforming the definition of medical expenses under FSAs, health savings accounts, Archer Medical Savings Accounts, and health reimbursement arrangements, including the exemption of over-the-counter medications prescribed by a doctor (begins 2011)
– $2.2 billion as part of an end to the Medicare Part D subsidy (begins 2013)

Senate-passed Patient Protection and Affordable Health Care Act (H.R. 3590):
– $148.9 billion as part of a 40 percent nondeductible excise tax on insurance plans of more than $8,500 for individuals and $23,000 for families and indexed to the CPI-U plus 1 percentage point (begins 2013)
– $101 billion in yearly nondeductible fees on manufacturers and importers of pharmaceuticals (begins 2010), on manufacturers and importers of medical devices (begins 2011), and health insurance providers (begins 2011)
– $86.8 billion as part of Medicare Payroll tax increase from 1.45 to 2.35 percent for individuals with wages of more than $200,000 and $250,000 for joint filers (begins 2013)
– $28 billion from employer penalties on full-time workers that receive subsidies to purchase coverage through new insurance exchanges
– $17.1 billion in corporate information reporting requirements (applies to payments made after December 31, 2011)
– $15.2 billion from an increase in the floor for deductible medical expenses from 7.5 percent of AGI to 10 percent of AGI and a “carve-out” for those older than 65
– $15 billion in tax penalties on individuals who fail to secure “qualified” health coverage (begins 2014)
– $13.3 billion from a cap on Flexible Spending Accounts (FSAs) at $2,500 and indexed forward to the CPI-U (begins 2011; currently there is no cap)
– $5.4 billion as part of an end to the Medicare Part D subsidy (begins 2011)
– $5 billion for reforming the definition of medical expenses under FSAs, health savings accounts, Archer Medical Savings Accounts, and health reimbursement arrangements, including the exemption of over-the-counter medications prescribed by a doctor (begins 2011)

The House- and Senate-passed bills clearly deviate from one another on the types of revenue-generating mechanisms included to maintain at least a “deficit-neutral” CBO score. The House bill relies punitively on both a surtax on high-income individuals as well as employers (even reaching small businesses). Alternatively, the Senate bill predominantly relies largely on a Medicare payroll tax on high-income individuals, fees on pharmaceutical medical device and health insurance providers, as well as an excise tax on high-value health insurance plans.

It is unclear, and will likely remain unclear until a final bill is passed, regarding the exact mix of revenue-generating mechanisms included to finance a final health care reform bill. What is clear, however, is that American individuals and businesses should begin bracing now for higher taxes—they are coming in one form or another!

John Ligon focuses his research on dynamic economic modeling of federal public policy as a senior policy analyst at The Heritage Foundation’s Center for Data Analysis. His policy research and writing analyzes the economic effects of federal tax, energy, regulatory, housing and housing finance policies. Read his research.

[…] long-term, requires states to spend more on programs they are currently seeking to cut back on, and slam Americans of all incomes with new taxes. Accompanying the health care debate is the attempt to raise the ceiling on the national debt, […]

[…] long-term, requires states to spend more on programs they are currently seeking to cut back on, and slam Americans of all incomes with new taxes. Accompanying the health care debate is the attempt to raise the ceiling on the national debt, […]

[…] long-term, requires states to spend more on programs they are currently seeking to cut back on, and slam Americans of all incomes with new taxes. Accompanying the health care debate is the attempt to raise the ceiling on the national debt, […]

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